Google Outspends Top Five Rivals Combined in Deals Push

Google Inc. (GOOG), drawing from its $56.5
billion cash pool, is spending more money than five of its
biggest U.S. competitors combined to buy into new markets as
growth in Web advertising slows.

Including this week’s announced deal to buy Nest Labs Inc.
for $3.2 billion in cash, Google has spent more than $17 billion
in the past two years to purchase hardware, software and
advertising-technology companies, according to data compiled by
Bloomberg. Apple (AAPL) Inc., Microsoft (MSFT) Corp., Facebook (FB) Inc.,
Amazon (AMZN).com Inc. and Yahoo! Inc. have spent less than $13 billion
in total to buy companies in the same period, based on deals
with disclosed prices.

The spending blitz, which is mostly in cash instead of
stock, underlines how Google is paying top dollar to expand its
reach and acquire the talent necessary to push deeper into areas
such as smartphones and Web-enabled gadgets. While Google has
dominated Internet search, a business that generates billions of
ad dollars each quarter, the company is seeking new revenue from
other sources and turning to its cash hoard to provide an
advantage.

“They’re looking at what’s next,” Sameet Sinha, an
analyst for B. Riley & Co. in San Francisco, said in an
interview. “They’re saying we’re going to keep our cash for
acquisitions.”

Slowing Growth

Google’s cash and equivalents jumped 24 percent from a year
earlier in the third quarter to $56.5 billion, while net revenue
increased by 5.2 percent to $11.9 billion. Google gets 84
percent of sales from Internet ads, even after diversifying into
hardware and other areas.

Revenue growth slowed last year and is expected to do so
again in 2014 based on analysts’ estimates as more online
activity shifts from personal computers to smartphones, tablets
and other connected devices. That hurts Google’s sales because
mobile ads typically cost less and because search is less
prominent on other devices. By 2017, PCs will account for 13
percent of connected-device shipments worldwide, down from 29
percent in 2012, according to researcher IDC. Tablets will make
up 17 percent by 2017, and smartphones will account for 71
percent, IDC said.

Nest Benefits

Google’s all-cash acquisition of Nest, its third biggest,
gives the company a maker of smart thermostats and smoke alarms
built by Tony Fadell, who previously helped Apple co-founder
Steve Jobs create the iPhone. Fadell’s co-founder Matt Rogers is
also an Apple alumnus, as are at least 97 Nest employees,
according to LinkedIn Corp. That’s talent Google can put to use.

“They know from their Apple days how to scale something,”
said Rob Coneybeer, a partner at Shasta Ventures in Menlo Park,
California, which was an early investor in Nest. “These guys
are not just good startup designers who can work on a
shoestring, but they know how to deploy and leverage lots of
capital.”

The Nest deal follows the June 2013 purchase of mobile
mapping software maker Waze Inc. for almost $1 billion in cash,
Google’s fifth-largest acquisition. Waze provides social tools
that Google can incorporate into maps, along with showing real-time road hazards and alternate routes. Facebook had been in
talks to buy Waze before Google succeeded with its offer.

Google’s biggest acquisition was its $12.4 billion deal for
Motorola in 2012, which gave the company a smartphone maker
along with a portfolio of wireless patents. It’s all part of
Google’s recognition that the Internet is everywhere, with
search and display ads making up just a piece of it, according
to Frank Gillett, an analyst at Forrester Research Inc. in
Cambridge, Massachusetts.

Crossing Boundaries

“In this world of interacting with lots of different
connected products, the integration of hardware, software and
cloud service will be really important,” Gillett said. “At
some point, really good advertising starts to cross the boundary
into assistance and advice.”

Google later sold off a piece of Motorola for more than $2
billion to Arris Group Inc.

Among top U.S. competitors, Microsoft has been the biggest
buyer in the past two years after Google, spending about $9
billion. Most of that was on the pending $7.4 billion purchase
of Nokia Oyj’s handset unit and the $1.2 billion acquisition of
business-software provider Yammer Inc.

Facebook’s biggest deal was mobile photo-sharing
application Instagram Inc. for more than $700 million in 2012.
The company was spurned in its effort last year to purchase
mobile app Snapchat Inc. for $3 billion, a person with knowledge
of the matter said in November.

Amazon, Apple

Amazon’s only notable deal in the past two years was for
robotics company Kiva Systems Inc., which cost about $700
million. Yahoo’s disclosed deals total about $1.2 billion, with
most of that spent on blogging startup Tumblr Inc. last year.

Apple’s spending amounted to less than $1 billion since
early 2012, with about $350 million spent on fingerprint-technology company AuthenTec Inc. The company has been using its
cash, which totaled $146.8 billion at the end of September, to
placate shareholders like Carl Icahn, who are demanding greater
returns. The company paid out $2.8 billion in dividends and
bought back $5 billion of its shares in the fiscal fourth
quarter.

Other Spending

While Google has resisted returning cash to shareholders,
not all of its money is being spent on acquisitions. The company
is investing internally on products like computerized Google
Glass eyewear and driverless cars.

To bolster its experiments in robotics, Google acquired
Boston Dynamics Inc. in December. The company, which makes
robots for the U.S. Defense Department, will be part of a new
product area led by Andy Rubin, former head of the Android
software unit.

Gene Munster, an analyst at Piper Jaffray Cos., said Google
will need to continue making “big bets” to move its leadership
in search into new areas.

“They’re trying to solve bigger longer-term problems, and
to do that they need platforms,” said Munster, who has the
equivalent of a buy rating on the shares. “They’re willing to
pay up for those platforms.”